Question

If you make an initial deposit of $1000 in an account that yields 5% interest

Answer 1

SI

$1 000 × 4 % × 10 = $400

CI

($1 000 × 1.04 ^10) - $1 000 = $1 480.24 - $1 000 = $480.24

Interest on interest only applies to Compound Interest.

Excluding year 1, which yields $40 [the same as SI] the interest on interest yields $480.24 - $40 = $440.24

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